Out of the loop

Alternative dispute resolution is often ignored as a way of settling disputes. Veronica Cowan reports on new and innovative approaches to ensure the procedure does not come off the rails

Alternative dispute resolution is evolving but it is still often treated with caution by insurers, claimants and defendants alike. So what are the current barriers to the increased use of ADR and are new approaches sufficiently innovative?

Among recent developments is a new dispute resolution service, Centre for Justice (www.centreforjustice.org), which is targeting the insurance industry, claiming it can help make significant savings on legal costs (Post, 8 January 2009, p1). The Centre for Justice is spear-headed by Anthony Hurndall, a former commercial property lawyer. Despite the official-sounding name it is a private not-for-profit entity. "The name choice was tricky," explains Mr Hurndall, "but we wanted to be treated seriously and to be viewed as authoritative."

Mr Hurndall is targeting the insurance industry, which funds most litigation, claiming he can potentially save up to 75% of legal costs by removing lawyers from the process. Andrew Underwood, head of the personal injury team at law firm Keoghs, declares this "a bold claim and an impressive one, if it can be substantiated," but wonders if it is a "utopian ideal", while Alan Jacobs, a partner at DLA Piper, thinks the big issue for Centre for Justice will be getting people to engage, "as people feel comfortable with their own lawyers".

No guarantees

There is a view that insurers are reticent to embrace mediation because there is no guarantee both sides will reach agreement yet several defendant lawyers dispute this. Neil Trayhurn, head of insurance practice at Bond Pearce, comments: "Mediation is an established procedure that any claims managers would use. Nobody wants costs to run up, and there is pressure from the courts to get the parties together."

It is based on quantum in the end, says Simon Brooks, a partner with Eversheds, who observes that ADR without lawyers has its attractions for people who can put their case and won't be brow-beaten. However, Tim Hardy, head of commercial litigation at CMS Cameron McKenna, remarks that a scheme that excludes lawyers is dangerous, as the parties might not understand their rights: "Most disputes turn on the application of law to facts, so the parties need lawyers, and will look to the mediator to tell them what the law is."

Mr Jacobs puts forward the view that some insurers hold back from mediation because only a few are mediation-savvy, and they still hold traditional views on how to handle claims. "There has been a slight move in the past two to three years because of pressure from the courts, yet mediation is a way of discovering what a claimant truly wants or needs. You can do a bit of reality testing on both sides, and it takes the parties out of the bunker."

David Fisher, catastrophic and injury claims technical manager at Axa, accepts insurers are reluctant to use mediation in the personal injury arena but has reservations about any plans to cut lawyers out: "In any PI claim consumers remain ill-informed and could be vulnerable, and it gives the mediator a potential conflict of interest." He adds that one advantage of using lawyers is that the risk transfers from the liability insurer to the client's lawyers' professional indemnity insurance.

Encountering resistance

The question is, are lawyers themselves a stumbling block to the extended use of ADR? Tina Whelan, head of business services at Dispute Mediation Services, believes so: "We often encounter resistance from lawyers. It may be that the parties' representatives are more used to face-to-face negotiations or trying to resolve conflict by protracted correspondence or litigation, but some solicitors adopt aggressive posturing." Will Jones, a solicitor at Langleys, concedes: "It may be true that some are less keen on formal types of ADR, like mediation, as there is generally enough experience between the insurers and lawyers involved to be able to deal with the issues without the costs associated with bringing in other parties."

Andrew Parker, head of strategic litigation at Beachcroft, disagrees with the suggestion that lawyers put insurers off mediation to protect their own turf, commenting that it is expensive unless it is a very big value case. He does support early neutral evaluation, which involves sending papers to an independent person and getting their view on the dispute. It can be made binding on all, on no one or just on one side, and later disclosed to the judge when costs are being assessed.

Bob Rabbitts, technical claims manager at Allianz Insurance, says his company has encouraged ADR for years, with the support of its lawyer panel but observes that when it is suggested to claimant lawyers, "only a small minority agree". Axa's Mr Fisher notes resistance by all parties, including judges at case management not ordering mediation. He continues: "Mediation is an opportunity to engage with the claimant for good or ill." This last point is echoed by Groupama's technical claims manager Neil Joslin, who says that, while his company's use of mediation is not extensive on the PI side, "it can be very powerful for insurers to sit with the claimant and there have been some real successes in the big value cases because the settlement parameters are wider apart".

However, it is very much a case of horses for courses. As far as the PI sector is concerned, for example, Terry Renouf, national senior partner at Berrymans Lace Mawer, regards settlement of these claims as efficient enough already. Mr Joslin observes that mediation can slow down the process and build in costs in low volume PI claims. That said, Mr Renouf acknowledges that in some cases the parties could mediate sooner but don't. "It is often a process problem. The mediation takes it outside the process of the district judge."

Matthew Hirst, chairman of the Forum of Insurance Lawyers' special interest group on ADR, and a partner at Kings Legal, sees district judges as part of the barrier to mediation. "They are not pushing mediation, and are not actively in favour of it." One of the messages is that if lawyers in the PI arena, with no experience of mediation, tick a box on the form saying the case is not suitable for mediation, they are not being challenged by district judges, which contrasts with the commercial field, like professional negligence and construction, where they would be.

Mr Rabbitts notes that the current fast-track proposals make no allowance for ADR, to resolve routine low value disputes quickly and cheaply. "This will be an opportunity lost if ADR remains unmentioned in the final detail."

So, how would the Centre for Justice's ADR model work? It would be a mixture of mediation and adjudication, explains Mr Hurndall. An independent assessor, probably a barrister or solicitor, would seek to mediate, but if that mediation fails, the assessor would make a binding adjudication - as both sides will have signed up to be bound from the start.

One assessor who is on board is Steve Cantle, a consultant with Kennedys, who does professional negligence work and sees one of the savings as being on documents alone, which can run into tens of thousands of pounds in a typical commercial case, because lawyers are terrified of missing anything for fear of being sued: "The idea is to agree to leave it all out, and the parties will get finality." He envisages handing down a draft decision on which both parties would comment.

New developments

There have also been new developments in the wider mediation environment. Andy Rogers, communications manager at the Centre for Effective Dispute Resolution - another independent non-profit organisation - explains that it is about to launch a new PI service to include telephone mediation, and one that would involve former district judges giving an opinion on what would happen if the case went to court. "There is a challenge in the insurance industry because insurers have a pride in solving their own claims, and some are reluctant to bring in third parties," he observes. It is understood that Allianz will be trialling telephone mediation with the CEDR.

It is important to note that not all claims are suited to ADR, although it depends less on the line of business or size of the claim, and more on the desired outcome. But ADR offers a wider range of outcomes than the courts, and greater flexibility. Ms Whelan comments: "It has been said that mediation leads to a sudden outbreak of common sense - because the aim is to solve problems not to find fault - and skilled mediators can achieve results satisfactory to both parties in many cases which are beyond the powers of lawyers and the courts."

Mr Rabbitts reports that cases that typically benefit are multi-party actions, such as employers' and public liability cases, where uncertain relationships exist between various contractors, and where many sets of lawyers' costs are accumulating. "Our experience is that high value cases of this type almost always settle 'on the day'."

Karen Boyt, UK legal services manager with Cunningham Lindsey, set up its mediation service last year, and says the main area of take up would be where there is a relationship to preserve. One example is neighbour disputes, which is an area in which Arc Legal Assistance has also launched a pilot for telephone conciliation, reports its claims manager Rebecca Conway.

An important issue to consider for those who are introducing new initiatives is what impact the economic downturn is likely to have on the demand for ADR. Catarina Yandell, a partner at BLM, carries out professional indemnity work and says mediation is always considered because it is always part of the court order, although "nothing beats picking up the phone". Mediation gives the client an opportunity to put their case, which a person accused of professional negligence, wants. She reports a massive increase in professional indemnity claims, with mortgage frauds emerging and solicitors being sued, so there will be more mediation, she predicts.

Professional indemnity insurers are generally in favour of mediation. Mark Bennett, claim legal manager at Travelers Professional Risks, which handles claims against lawyers, surveyors, accountants, technology companies and financial institutions, says: "We are keen to use ADR in appropriate cases, and find it helpful in complex, high-value or multi-party claims." But he points out that by ADR he means mediation and 'without prejudice' meetings with claimants and their lawyers without a mediator. "There is an attraction for large commercial claimants in doing a deal through ADR and for individual claimants as a way of avoiding litigation costs and anxiety."

Clearly, the interest in ADR is not diminishing and some sectors in particular are seeing the benefits. There have also been some exciting new initiatives recently but they will have to overcome a number of barriers if they are to flourish.

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